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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________To_______________________.
Commission file number 0-15087
HEARTLAND EXPRESS, INC.
(Exact name of registrant as specified in its charter)
Nevada 93-0926999
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
2777 Heartland Drive
Coralville, Iowa 52241
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 319-545-2728
Securities Registered Pursuant to section 12(b) of the Act: None
Securities Registered Pursuant to section 12(g) of the Act: $0.01 Par Value
Common Stock
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the registrant's definitive proxy statement
incorporated by reference in Part III of this Form 10-K. [ X ]
The aggregate market value of the shares of the registrant's $0.01 par value
common stock held by non-affiliates of the registrant as of March 14, 2002 was
$661,273,655 (based upon $22.18 per share being the average of the closing bid
and asked price on that date as reported by NASDAQ). In making this calculation
the issuer has assumed, without admitting for any purpose, that all executive
officers and directors of the registrant, and no other persons, are affiliates.
The number of shares outstanding of the Registrant's common stock as March 14,
2002 was 50,000,000.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 2002 annual meeting of
stockholders that will be filed no later than April 26, 2002.
1
Cross Reference Index
The following cross-reference index indicates that document and location of the
information contained herein and incorporated by reference into the Form 10-K.
Document and Location
Part I
Item 1 Business Page 3-5 herein
Item 2 Properties Page 5 herein
Item 3 Legal Proceedings Page 5 herein
Item 4 Submission of Matters to a Vote
of Securities Holders Page 6 herein
Part II
Item 5 Market for the Registrant's Common
Equity and Related Stockholder Matters Page 6 herein
Item 6 Selected Financial Data Page 7 herein
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 8-12 herein
Item 7A Quantitative and Qualitative Disclosures
about Market Risk Page 12 herein
Item 8 Financial Statements and Supplementary Data Page 12 and 16-26
herein
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure Page 12 herein
Part III
Item 10 Directors and Executive Officers of
the Registrant Pages 3 and 4 of
Proxy Statement
Item 11 Executive Compensation Pages 8-10 of
Proxy Statement
Item 12 Security Ownership of Certain Beneficial
Owners and Management Page 11 of Proxy
Statement
Item 13 Certain Relationships and Related Transactions Page 7 of Proxy
Statement
Part IV
Item 14 Exhibits, Financial Statements and Financial
Statement Schedule, and Reports on Form 8-K Pages 13 and 14
herein
This report contains "forward-looking statements." These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Factors That May
Affect Future Results" for additional information and factors to be considered
concerning forward-looking statements.
2
PART I
ITEM 1. BUSINESS
General
Heartland Express, Inc. ("Heartland" or the "Company") is a short-to-medium
haul truckload carrier based near Iowa City, Iowa. The Company provides
nationwide transportation service to major shippers, using late-model equipment
and a combined fleet of company-owned and owner-operator tractors. The Company's
primary traffic lanes are between customer locations east of the Rocky
Mountains, with selected service to the West. Management believes that the
Company's service standards and equipment accessibility have made it a core
carrier to many of its major customers.
Heartland was founded by Russell A. Gerdin in 1978 and became publicly
traded in November 1986. Over the fifteen years from 1986 to 2001, Heartland has
grown to $294.6 million in revenue from $21.6 million and net income has
increased to $37.7 million from $3.0 million. Much of this growth has been
attributable to expanding service for existing customers, acquiring new
customers, and continued expansion of the Company's operating regions.
In addition to internal growth, Heartland has completed four acquisitions
since 1987 with the most recent in July, 1997. These acquisitions have enabled
Heartland to solidify its position within existing regions, expand its customer
base in the East and Northeast United States, and to pursue new customer
relationships in new markets.
Heartland Express, Inc. is a holding company incorporated in Nevada, which
owns, directly or indirectly, all of the stock of Heartland Express Inc. of
Iowa, Heartland Equipment, Inc., and A & M Express, Inc.
Operations
Heartland's operations department focuses on the successful execution of
customer expectations and providing consistent opportunity for the fleet of
employee drivers and independent contractors, while maximizing equipment
utilization. These objectives require a combined effort of marketing, regional
operations managers, and fleet management.
The Company's regional operations managers are responsible for maintaining
the continuity between the customer's needs and Heartland's ability to meet
those needs by communicating customer's expectations to the fleet management
group. They are charged with development of customer relationships, ensuring
service standards, coordinating proper freight-to-capacity balancing, trailer
asset management, and daily tactical decisions pertaining to matching the
Company's freight with the appropriate capacity within geographical service
areas. They assign orders to drivers based on well-defined criteria, such as
driver safety and DOT compliance, customer needs and service requirements,
equipment utilization, driver time at home, operational efficiency, and
equipment maintenance needs.
Fleet management employees are charged with the management and development
of their fleets of drivers. Additionally, they maximize the capacity that is
available to the organization to meet the service needs of the Company's
customers. Their responsibilities include meeting the needs of the drivers
within the standards that have been set by the organization and communicating
the requirements of the customers to the drivers on each order to ensure
successful execution.
Serving the short-to-medium haul market (539-mile average length of haul in
2001) permits the Company to use primarily single, rather than team drivers and
dispatch most trailers directly from origin to destination without an
intermediate equipment change other than for driver scheduling purposes.
Heartland also operates six specialized regional distribution operations
near Atlanta, Georgia; Carlisle, Pennsylvania; Columbus, Ohio; Decatur,
Illinois; Jacksonville, Florida; and Kingsport, Tennessee. These short-haul
operations concentrate on freight movements generally within a 400-mile radius
of the regional terminal, and are designed to meet the needs of significant
customers in those regions. Dispatchers at the regional locations handle these
operations, and the Company uses a centralized computer network and regular
communication to achieve system-wide load coordination.
3
The Company emphasizes customer satisfaction through on-time performance,
dependable late-model equipment, and consistent equipment availability to serve
large customers' volume requirements. The Company also maintains a high trailer
to tractor ratio, which facilitates the stationing of trailers at customer
locations for convenient loading and unloading. This minimizes waiting time,
which increases tractor utilization and assists with driver retention.
Customers and Marketing
The Company targets customers in its operating area that require multiple,
time-sensitive shipments, including those employing "just-in-time" manufacturing
and inventory management. In seeking these customers, Heartland has positioned
itself as a provider of premium service at compensatory rates, rather than
competing solely on the basis of price. Freight transported for the most part is
non-perishable and predominantly does not require driver handling. We believe
Heartland's reputation for quality service, reliable equipment, and equipment
availability makes it a core carrier to many of its customers.
Heartland seeks to transport freight that will complement traffic in its
existing service areas and remain consistent with the Company's focus on
short-to-medium haul and regional distribution markets. Management believes that
building additional service in the Company's primary traffic lanes will assist
in controlling empty miles and enhancing driver "home time."
The Company's 25, 10, and 5 largest customers accounted for 67%, 49%, and
38% of revenue, respectively, in 2001. The Company's primary customers include
retailers and manufacturers. The distribution of customers is not significantly
different from the previous year. Sears Logistics Services accounted for 15% of
revenue in 2001. No other customer accounted for as much as ten percent of
revenue.
Drivers, Independent Contractors, and Other Personnel
Heartland's workforce is an essential ingredient in achieving its business
objectives. As of December 31, 2001, Heartland employed 1,812 persons. The
Company also contracted with independent contractors to provide and operate
tractors. Independent contractors own their own tractors and are responsible for
all associated expenses, including financing costs, fuel, maintenance,
insurance, and taxes. The Company historically has operated a combined fleet of
company and independent contractor tractors. Management believes that a combined
fleet compliments the Company's recruiting efforts and offers greater
flexibility in responding to fluctuations in shipper demand.
Management's strategy for both employee and independent contractor drivers
is to (1) hire the best; (2) promote retention through financial incentives,
positive working conditions, and targeting freight that requires little or no
handling; and (3) minimize safety problems through careful screening, mandatory
drug testing, continuous training, and financial rewards for accident-free
driving. Heartland also seeks to minimize turnover of its employee drivers by
providing modern, comfortable equipment and of all drivers by regularly
scheduling them to their homes. All drivers are compensated for empty miles as
well as loaded miles. This provides an incentive for the Company to minimize
empty miles and at the same time does not penalize drivers for inefficiencies of
operations that are beyond their control.
Heartland is not a party to a collective bargaining agreement. Management
believes that the Company has good relationships with its employees.
Revenue Equipment
Heartland's management believes that operating high-quality, efficient
equipment is an important part of providing excellent service to customers. The
Company's policy is to operate its tractors while under warranty to minimize
repair and maintenance cost and reduce service interruptions caused by
breakdowns. In addition, the Company's preventive maintenance program is
designed to minimize equipment downtime, facilitate customer service, and
enhance trade value when equipment is replaced. Factors considered when
purchasing new equipment include fuel economy, price, technology, warranty
terms, manufacturer support, driver comfort, and resale value.
4
Competition
The truckload industry is highly competitive and includes thousands of
carriers, none of which dominates the market. The Company competes primarily
with other truckload carriers, and to a lesser extent with railroads, intermodal
service, less-than-truckload carriers, and private fleets operated by existing
and potential customers. Although intermodal and rail service has improved in
recent years, such service has not been a major factor in the Company's
short-to-medium haul traffic lanes (539-mile average length of haul).
Historically, competition has created downward pressure on the truckload
industry's pricing structure. Management believes that competition for the
freight targeted by the Company is based primarily upon service and efficiency
and to a lesser degree upon freight rates.
Regulation
The Company is a common and contract motor carrier of general commodities.
Historically, the Interstate Commerce Commission (the "ICC") and various state
agencies regulated motor carriers' operating rights, accounting systems, mergers
and acquisitions, periodic financial reporting, and other matters. In 1995
federal legislation preempted state regulation of prices, routes, and services
of motor carriers and eliminated the ICC. Several ICC functions were transferred
to the Department of Transportation (the "DOT"). Management does not believe
that regulation by the DOT or by the states in their remaining areas of
authority will have a material effect on the Company's operations. The Company's
employee and independent contractor drivers also must comply with the safety and
fitness regulations promulgated by the DOT, including those relating to drug and
alcohol testing and hours of service.
The Company's operations are subject to various federal, state, and local
environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
other discharge of pollutants into the air and surface and underground waters,
and the disposal of certain substances. Management believes that its operations
are in material compliance with current laws and regulations and does not know
of any existing condition that would cause compliance with applicable
environmental regulations to have a material effect on the Company's capital
expenditures, earnings and competitive position. In the event the Company should
fail to comply with applicable regulations, the Company could be subject to
substantial fines or penalties and to civil or criminal liability.
ITEM 2. PROPERTIES
Heartland's headquarters is located adjacent to Interstate 80, near Iowa
City, Iowa. The facilities include five acres of land, two office buildings of
approximately 25,000 square feet combined and a storage building, all leased
from the Company's president and principal stockholder. Company-owned facilities
at this location include three tractor and trailer maintenance garages totaling
approximately 26,500 square feet, and a safety and service complex adjacent to
Heartland's corporate offices. The adjacent facility provides the Company with
six acres of additional trailer parking space, a drive-through inspection bay,
an automatic truck wash facility, and 6,000 square feet of office space and
driver facilities. The Company also owns a motel located adjacent to its
corporate offices, which functions as a motel and driver training center.
The Company owns regional facilities in Ft. Smith, Arkansas; O'Fallon,
Missouri; Atlanta, Georgia; Columbus, Ohio; Jacksonville, Florida; and
Kingsport, Tennessee. The Company is leasing facilities in Carlisle,
Pennsylvania; and Decatur, Illinois. A facility in Dubois, Pennsylvania is being
leased to an unrelated third party.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred in
the transportation of freight. The Company believes that adverse results in
these cases, whether individual or in the aggregate, would not have a material
effect upon the Company's financial position or results of operations.
5
On January 7, 2002, the Owner-Operator Independent Drivers Association,
Inc. served a lawsuit against the Company in the United State District Court for
the Southern District of Iowa. The lawsuit seeks class action status on behalf
of the Company's owner-operators since 1996. Among other things, the lawsuit
alleges that the Company failed to adequately inform the owner-operators of
certain deductions from their settlement statements in violation of Department
of Transportation regulations and that the Company's standard contract with
owner-operators violates those regulations. The lawsuit seeks unspecified
damages and an injunction to prevent owner-operators from hauling for the
Company until alleged contractual deficiencies are corrected. The Company
intends to defend the lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the fourth quarter of 2001, no matters were submitted to a vote of
securities holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's common stock has been traded on the NASDAQ National Market
under the symbol HTLD, since November 5, 1986, the date of the Company's initial
public offering. The following table sets forth for the calendar period
indicated the range of high and low price quotations for the Company's common
stock as reported by NASDAQ from January 1, 2000 to December 31, 2001. The
prices have been restated to reflect the stock splits made on May 31, 2001 and
February 19, 2002.
Period High Low
Calendar Year 2001
1st Quarter $ 13.95 $ 10.97
2nd Quarter 15.09 11.67
3rd Quarter 19.31 13.25
4th Quarter 19.60 14.04
Calendar Year 2000
1st Quarter $ 8.18 $ 6.41
2nd Quarter 9.83 7.04
3rd Quarter 9.48 7.99
4th Quarter 12.56 8.02
The prices reported reflect interdealer quotations without retail mark-ups,
markdowns or commissions, and may not represent actual transactions. As of March
14, 2002 the Company had 197 stockholders of record of its common stock.
However, the Company estimates that it has a significantly greater number of
stockholders because a substantial number of the Company's shares are held of
record by brokers or dealers for their customers in street names.
Dividend Policy
The Company has never declared and paid a cash dividend. It is the current
intention of the Company's Board of Directors to retain earnings to finance the
growth of the Company's business. Future payments of cash dividends will depend
upon the financial condition, results of operations and capital requirements of
the Company, as well as other factors deemed relevant by the Board of Directors.
6
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below reflect the
consolidated financial position and results of operations of Heartland Express,
Inc., and its subsidiaries. The selected consolidated financial data are derived
from the Company's consolidated financial statements. This data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto included elsewhere herein.
Year Ended December 31,
(in thousands, except per share data)
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Income Statement Data:
Operating revenue ................ $ 294,617 $ 274,827 $ 261,004 $ 263,489 $ 262,504
--------- --------- --------- --------- ---------
Operating expenses:
Salaries, wages, and benefits .... 87,643 73,847 60,258 51,995 49,535
Rent and purchased transportation 65,912 75,191 90,337 100,089 101,169
Operations and maintenance ....... 47,903 42,651 30,167 26,072 27,739
Taxes and licenses ............... 6,189 5,952 5,935 6,150 6,049
Insurance and claims ............. 7,619 6,706 5,742 6,810 10,404
Communications and utilities ..... 2,903 2,952 2,629 2,684 2,681
Depreciation ..................... 17,001 16,285 16,216 18,108 16,752
Other operating expenses ......... 6,814 6,505 5,941 5,872 5,048
(Gain) loss on disposal of
fixed assets..................... 14 (1,512) (928) (332) (59)
--------- --------- --------- --------- ---------
241,998 228,577 216,297 217,448 219,318
--------- --------- --------- --------- ---------
Operating income............... 52,619 46,250 44,707 46,041 43,186
Interest income, net ............. 4,435 5,726 5,953 4,896 3,782
--------- --------- --------- --------- ---------
Income before income taxes ......... 57,054 51,976 50,660 50,937 46,968
Income taxes ....................... 19,398 17,672 17,536 17,828 16,895
--------- --------- --------- --------- ---------
Net income ......................... $ 37,656 $ 34,304 $ 33,124 $ 33,109 $ 30,073
========= ========= ========= ========= =========
Basic weighted average shares
outstanding ........................ 50,000 50,342 57,871 59,133 59,133
========= ========= ========= ========= =========
Basic earnings per share ........... $ 0.75 $ 0.68 $ 0.57 $ 0.56 $ 0.51
========= ========= ========= ========= =========
Balance sheet data:
Net working capital ................ $ 147,904 $ 118,506 $ 111,675 $ 127,989 $ 82,170
Total assets........................ 314,238 268,055 246,494 256,828 225,467
Stockholders' equity................ 232,789 195,134 174,840 186,848 153,739
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Significant Accounting Policies
In the opinion of management, the accounting policies that generally have
the most significant impact on the financial position or the results of
operations include: revenue recognition, claims and insurance accruals, and
depreciation and capitalization of assets. These accounting policies, and
others, are described in further detail in the Notes to Consolidated Financial
Statements.
General
The following table sets forth the percentage relationship of expense items
to operating revenue for the periods indicated.
Year Ended December 31,
----------------------------
2001 2000 1999
------ ------ ------
Operating revenue .............................. 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses:
Salaries, wages, and benefits ............... 29.7% 26.9% 23.1%
Rent and purchased transportation ........... 22.4 27.4 34.6
Operations and maintenance .................. 16.2 15.5 11.6
Taxes and licenses .......................... 2.1 2.2 2.3
Insurance and claims ........................ 2.6 2.4 2.2
Communications and utilities ................ 1.0 1.1 1.0
Depreciation ................................ 5.8 5.9 6.2
Other operating expenses .................... 2.3 2.4 2.2
(Gain) loss on disposal of fixed assets...... 0.0 (0.6) (0.4)
------ ------ ------
Total operating expenses .................... 82.1% 83.2% 82.9%
------ ------ ------
Operating income.......................... 17.9% 16.8% 17.1%
Interest income ................................ 1.5 2.1 2.3
------ ------ ------
Income before income taxes .................. 19.4% 18.9% 19.4%
Federal and state income taxes ................. 6.6 6.4 6.7
------ ------ ------
Net income .................................. 12.8% 12.5% 12.7%
====== ====== ======
Results of Operations
Year Ended December 31, 2001 Compared With Year Ended December 31, 2000
Operating revenue increased $19.8 million (7.2%), to $294.6 million in 2001
from $274.8 million in 2000, as a result of the Company's expansion of the
customer base as well as increased volume from existing customers. Operating
revenue for both periods was also positively impacted by fuel surcharges
assessed to the customer base.
Salaries, wages, and benefits increased $13.8 million (18.7%), to $87.6
million in 2001 from $73.8 million in 2000. As a percentage of revenue,
salaries, wages, and benefits increased to 29.7% in 2001 from 26.9% in 2000.
These increases are the result of increased reliance on employee drivers and a
corresponding decrease in miles driven by independent contractors. The increase
in employee driver miles was attributable to internal growth in the company
tractor fleet. During 2001, employee drivers accounted for 68% and independent
contractors 32% of the total fleet miles, compared with 60% and 40%,
respectively, in 2000.
8
Rent and purchased transportation decreased $9.3 million (12.3%), to $65.9
million in 2001 from $75.2 million in 2000. As a percentage of revenue, rent and
purchased transportation decreased to 22.4% in 2001 from 27.4% in 2000. This
reflected the Company's decreased reliance upon independent contractors. Rent
and purchased transportation for both periods includes amounts paid to
independent contractors for fuel surcharge.
Operations and maintenance increased $5.2 million (12.3%) to $47.9 million
in 2001 from $42.7 million in 2000. As a percentage of revenue, operations and
maintenance increased to 16.2% in 2001 from 15.5% in 2000. This increase is
attributable to increased reliance on the Company owned fleet.
Insurance and claims increased $0.9 million (13.6%), to $7.6 million in
2001 from $6.7 million in 2000. As a percentage of revenue, insurance and claims
increased to 2.6% in 2001 from 2.4% in 2000. Insurance and claims expense will
vary as a percentage of operating revenue from period to period based on the
frequency and severity of claims incurred in a given period as well as changes
in claims development trends.
Depreciation increased $0.7 million (4.4%), to $17.0 million in 2001 from
$16.3 million in 2000 primarily due to an increase in the number of
Company-owned tractors. As a percentage of revenue, depreciation decreased to
5.8% in 2001 from 5.9% in 2000.
Other operating expenses increased $0.3 million (4.8%), to $6.8 million in
2001 from $6.5 million in 2000 due to an increase in total fleet miles. As a
percentage of revenue, other operating expenses decreased to 2.3% in 2001 from
2.4% in 2000. Other operating expenses consists of pallet cost, driver
recruiting expenses, and administrative costs.
Primarily as a result of the foregoing, the Company's operating ratio
decreased to 82.1% in 2001 compared with 83.2% in 2000.
Interest income decreased $1.3 million (22.5%), to $4.4 million in 2001
from $5.7 million in 2000 due to lower interest rates. The Company had $161.1
million in cash, cash equivalents, and investments at December 31, 2001 compared
with $128.0 million at December 31, 2000. Interest income earned is primarily
exempt from federal taxes and therefore earned at a lower pre-tax rate.
The Company's effective tax rate was 34.0% in 2001 and 34.0% in 2000.
As a result of the foregoing, net income increased to $37.7 million in 2001
from $34.3 million in 2000. The net income for the 2000 period was impacted by
the gain from the sale of fixed assets, primarily real estate.
Year Ended December 31, 2000 Compared With Year Ended December 31, 1999
Operating revenue increased $13.8 million (5.3%), to $274.8 million in 2000
from $261.0 million in 1999, as a result of the Company's expansion of the
customer base as well as increased volume from existing customers. Operating
revenue was also positively impacted by fuel surcharges assessed to the customer
base.
Salaries, wages, and benefits increased $13.5 million (22.5%), to $73.8
million in 2000 from $60.3 million in 1999. As a percentage of revenue,
salaries, wages, and benefits increased to 26.9% in 2000 from 23.1% in 1999.
These increases are the result of increased reliance on employee drivers and a
corresponding decrease in miles driven by independent contractors. In addition,
the Company has increased employee driver pay four times since September 1,
1998. The increase in employee driver miles was attributable to internal growth
in the company tractor fleet. During 2000, employee drivers accounted for 60%
and independent contractors 40% of the total fleet miles, compared with 51% and
49%, respectively, in 1999.
Rent and purchased transportation decreased $15.1 million (16.8%), to $75.2
million in 2000 from $90.3 million in 1999. As a percentage of revenue, rent and
purchased transportation decreased to 27.4% in 2000 from 34.6% in 1999. This
reflected the Company's decreased reliance upon independent contractors. In
addition, an increased industry demand for independent contractors has negated
the Company's previous competitive advantage.
9
Operations and maintenance increased $12.5 million (41.4%), to $42.7
million in 2000 from $30.2 million in 1999. As a percentage of revenue,
operations and maintenance increased to 15.5% in 2000 from 11.6% in 1999. This
increase is attributable to an increase in fuel prices and increased reliance on
the Company owned fleet.
Taxes and licenses increased $0.1 million (0.3%), to $6.0 million in 2000
from $5.9 million in 1999. As a percentage of revenue, taxes and licenses
decreased to 2.2% in 2000 from 2.3% in 1999.
Insurance and claims increased $1.0 million (16.8%), to $6.7 million in
2000 from $5.7 million in 1999. As a percentage of revenue, insurance and claims
increased to 2.4% in 2000 from 2.2% in 1999. Insurance and claims expense will
vary as a percentage of operating revenue from period to period based on the
frequency and severity of claims incurred in a given period as well as changes
in claims development trends.
Communications and utilities increased $0.4 million (12.3%), to $3.0
million in 2000 from $2.6 million in 1999. As a percentage of revenue,
communications and utilities increased to 1.1% in 2000 from 1.0% in 1999.
Depreciation increased $0.1 million (0.4%), to $16.3 million in 2000 from
$16.2 million in 1999. As a percentage of revenue, depreciation decreased to
5.9% in 2000 from 6.2% in 1999. The decrease resulted from the increase in the
number of trailers in the Company's fleet becoming fully depreciated.
Other operating expenses increased $0.6 million (9.5%), to $6.5 million in
2000 from $5.9 million in 1999. As a percentage of revenue, other operating
expenses increased to 2.4% in 2000 from 2.3% in 1999. Other operating expenses
consists of pallet cost, driver recruiting expenses, goodwill, and
administrative costs.
Primarily as a result of the foregoing, the Company's operating ratio
increased to 83.2% in 2000 compared with 82.9% in 1999.
Interest income decreased $0.3 million (3.8%), to $5.7 million in 2000 from
$6.0 million in 1999. The Company had $128.0 million in cash, cash equivalents,
and investments at December 31, 2000 compared with $126.7 million at December
31, 1999. Interest income earned is primarily exempt from federal taxes and
therefore earned at a lower pre-tax rate.
The Company's effective tax rate was 34.0% in 2000 and 34.6% in 1999.
As a result of the foregoing, net income increased to $34.3 million in 2000
from $33.1 million in 1999. The net income for both periods was impacted by the
gain from the sale of fixed assets, primarily real estate.
Liquidity and Capital Resources
The growth of the Company's business requires significant investments in
new revenue equipment. Historically the Company has been debt-free, financing
revenue equipment through cash flow from operations. The Company also obtains
tractor capacity by utilizing independent contractors, who provide a tractor and
bear all associated operating and financing expenses.
Cash and cash equivalents and investments increased to $161.1 million as of
December 31, 2001 from $128.0 million at December 31, 2000. The Company's policy
is to purchase only high quality liquid investments. Cash equivalents and
investments primarily consist of fixed rate municipal demand bonds and municipal
demand bond funds.
Net cash provided by operations was $61.2 million in 2001, $49.9 million in
2000, and $45.6 million in 1999. The primary source of funds in 2001 was net
income of $37.7 million increased by non-cash adjustments, including
depreciation and amortization of $17.8 million.
Trade receivables increased to $25.7 million as of December 31, 2001 from
$24.9 million as of December 31, 2000 primarily due to a 4.6% increase in fourth
quarter operating revenue. Cash paid for income taxes decreased to $14.3 million
in 2001 from $16.5 million in 2000. Lower income taxes on a cash basis are
primarily due to increased interest income exempt from federal taxes.
10
Insurance accruals increased to $36.4 million as of December 31, 2001 from
$35.7 million as of December 31, 2000. The Company's insurance program for
liability, physical damage and cargo damage involves self-insurance retention
for the first $500,000 per claim. The Company's insurance program for workers'
compensation involves self-insurance retention for the first $300,000 per claim.
Claims in excess of the risk retention are covered by insurance in amounts which
management considers adequate. The Company accrues the estimated cost of the
self-insured portion of the pending claims. These accruals are estimated based
on management's evaluation of the nature and severity of individual claims. If
adjustments to previously established accruals are required, such amounts are
included in operating expenses.
Net investing activities consumed $68.5 million in 2001, $34.1 million in
2000, and $17.7 million in 1999. The primary use of cash in 2001 other than the
investment in certain bonds mentioned above, was $29.1 million for capital
expenditures, including revenue equipment. The Company expects to finance future
growth in its company-owned fleet primarily through cash flow from operations
and cash equivalents currently on hand.
Net cash used in financing activities was none in 2001, $14.0 million in
2000, and $45.1 million in 1999. The 2000 and 1999 financing activity was
comprised solely of the repurchase of approximately 4.6 million shares of the
Company's common stock.
The Company has one customer who accounted for more than 10% of the
Company's revenue for the year ended December 31, 2001. As disclosed in footnote
two to the financial statements, historically a small number of customers
generate a substantial percentage of revenue. In 2001, the Company's largest
customer generated approximately 15% of operating revenue. The loss of a major
customer could negatively impact the Company. Any negative impact would be
mitigated by two factors: (1) the strong overall financial position of the
Company (no long-term debt at December 31, 2001 and $161.1 million in cash, cash
equivalents, and investments) and (2) the flexibility inherent in having a
substantial percentage of fleet miles being generated by independent contractors
who provide their own tractors.
Based on the Company's strong financial position (current ratio of 3.4 and
no debt), management foresees no significant barriers to obtaining sufficient
financing, if necessary, to continue with growth plans.
Inflation and Fuel Cost
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operations. During the past
three years, the most significant effects of inflation have been on revenue
equipment prices and the compensation paid to the drivers. Innovations in
equipment technology and comfort have resulted in higher tractor prices, and
there has been an industry-wide increase in wages paid to attract and retain
qualified drivers. The Company historically has limited the effects of inflation
through increases in freight rates and certain cost control efforts. In addition
to inflation, fluctuations in fuel prices can affect profitability. Most of the
Company's contracts with customers contain fuel surcharge provisions. Although
the Company historically has been able to pass through most long-term increases
in fuel prices and operating taxes to customers in the form of surcharges and
higher rates, shorter-term increases are not fully recovered.
Seasonality
The nature of the Company's primary traffic (appliances, automotive parts,
paper products, retail goods, and packaged foodstuffs) causes it to be
distributed with relative uniformity throughout the year. However, earnings have
historically been affected adversely during the fourth quarter as a result of
reduced shipments by customers during the winter holiday season. In addition,
the Company's operating expenses historically have been higher during the winter
months due to increased operating costs in colder weather and higher fuel
consumption due to increased engine idling.
Recent Pronouncements
In the third quarter of 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets, that will be
adopted by the Company on January 1, 2002. SFAS No. 142 requires that upon
adoption and at least annually, the Company assess goodwill impairment by
applying a fair value based test. With the adoption of SFAS No. 142, goodwill
will no longer be subject to amortization resulting in a decrease in annualized
operating expenses of $778,116. The Company is in the process of determining the
impact of this new statement to the net book value for goodwill of $414,597 at
December 31, 2001.
11
Also, in the third quarter, the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations, and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred. SFAS No. 144 addresses financial accounting and reporting
for impairment or disposal of long-lived assets, superceding FASB Statement 121,
Accounting for the Impairment of Long-lived Assets to be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. SFAS
No. 143 and SFAS No. 144 are effective for the Company as of January 1, 2003 and
2002, respectively. At present, the Company is currently assessing, but has not
yet determined, the complete impact the adoption of SFAS No. 143 will have on
its financial position and results of operations. The Company does not expect
the adoption of SFAS No. 144 to have any impact on its financial position and
results of operations.
Factors That May Affect Future Results
A number of factors over which the Company has little or no control may
affect the Company's future results. Without limitation, these factors include
economic factors such as recessions, downturns in customers' business cycles,
surplus inventories, inflation, and fuel price increases; fluctuations in the
resale value of the Company's used revenue equipment; the availability and
compensation of qualified drivers; the identification of acquisition targets and
the ability to negotiate, finance, and integrate acquired companies. Readers
should review and consider the various disclosures made by the Company in its
press releases, stockholders reports, and public filings, as well as the factors
explained herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company purchases only high quality liquid investments. Primarily all
investments as of December 31, 2001 have an original maturity of three months or
less. The Company holds all investments to maturity and therefore, is exposed to
minimal market risk related to its cash equivalents and investments.
The Company has no debt outstanding as of December 31, 2001 and therefore,
has no market risk related to debt.
As of December 30, 2001, the Company has no derivative financial
instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of operations, cash flows, and
stockholders' equity, and notes related thereto, are contained at pages 17 to 26
of this report. Selected quarterly data is contained at page 26. Such
information is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers, directors, and director
nominee, set forth under the caption "Election of Directors-Information
Concerning Executive Officers and Directors" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" on pages 3 and 4 and 10 of the
registrant's proxy statement relating to its 2002 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission in
accordance with Rule 14a-6 promulgated under the Securities Exchange Act of 1934
(the "Proxy Statement"), is incorporated by reference. With the exception of the
foregoing information and other information specifically incorporated by
reference into this Form 10-K report, the Proxy Statement is not being filed as
a part hereof.
12
ITEM 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on pages 8 and 9 of the Proxy Statement is
incorporated herein by reference; provided, however, that the "Board of
Directors' Report on Executive Compensation" is not incorporated by reference
here.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial owners
and management included under the caption "Principal Stockholders and
Stockholdings of Management" on page 11 of the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Board of Directors Interlocks and
Insider Participation / Certain Transactions and Relationships" on page 7 of the
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements and Schedules
The Company's audited financial statements are set forth on the
following pages of this report:
Page
Report of Independent Public Accountants ................................ 16
Consolidated Balance Sheets ............................................. 17
Consolidated Statements of Operations ................................... 18
Consolidated Statements of Stockholders' Equity ......................... 19
Consolidated Statements of Cash Flows ................................... 20
Notes to Consolidated Financial Statements .............................. 21-26
(a) 2. Financial Statement Schedule
Page
Valuation and Qualifying Accounts and Reserves .......................... 26
(a) 3. Exhibits required by Item 601 of Regulation S-K are listed below.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on May 10, 2001 reporting
the five-for-four stock split effected as a 25% stock dividend paid on
May 31, 2001 to the stockholders of record of the Company's common
stock on May 21, 2001.
The Company filed a report on Form 8-K on September 18, 2001 reporting
a stock repurchase program.
(c) Exhibits
Exhibit No. Document Page of Method of Filing
3.1 Articles of Incorporation Incorporated by reference to the
Company's registration statement
on Form S-1, Registration No.
33-8165, effective November 5, 1986.
13
3.2 Bylaws Incorporated by reference to the
Company's registration statement
on Form S-1, Registration No.
33-8165, effective November 5, 1986.
3.3 Certificate of Amendment to Incorporated by reference to the
Articles of Incorporation Company's Form 10-QA, for the
quarter ended June 30, 1997, dated
March 26, 1998.
4.1 Articles of Incorporation Incorporated by reference to the
Company's registration statement on
Form S-1, Registration No.33-8165,
effective November 5, 1986.
4.2 Bylaws Incorporated by reference to the
Company's registration statement on
Form S-1, Registration No. 33-8165,
effective November 5, 1986.
4.3 Certificate of Amendment to Incorporated by reference to the
Articles of Incorporation Company's Form 10-QA, for the
quarter ended June 30, 1997, dated
March 26, 1998.
9.1 Voting Trust Agreement dated Incorporated by reference to the
June 6, 1997 between Larry Company's Form 10-K for the year
Crouse as trustee under the ended December 31, 1997. Commission
Gerdin Educational Trusts and file no. 0-15087.
Larry Crouse voting trustee.
10.1 Business Property Lease Incorporated by reference to the
between Russell A. Gerdin Company's Form 10-Q for the quarter
as Lessor and the Company ended September, 30, 2000.
as Lessee, regarding the Commission file no. 0-15087.
Company's headquarters at
2777 Heartland Drive,
Coralville, Iowa 52241
10.2 Form of Independent Contractor Incorporated by reference to the
Operating Agreement between Company's Form 10-K for the year
the Company and its independent ended December 31, 1993. Commission
contractor providers of file no. 0-15087.
tractors
10.3 Description of Key Management Incorporated by reference to the
Deferred Incentive Compensation Company'sForm 10-K for the year
Arrangement ended December 31, 1993. Commission
file no. 0-15087.
21 Subsidiaries of the Registrant Incorporated by reference to the
Company's Form 10-K for the year
ended December 31, 2000. Commission
file no. 0-15087.
27 Financial Data Schedule Filed herewith.
ITEM 99. REPORTING REQUIREMENTS FOR ARTHUR ANDERSEN LLP - AUDITED COMPANIES
Arthur Andersen, LLP ("Andersen") has represented to us that the audit of
Heartland Express, Inc. for the year ended December 31, 2001, was subject to
Andersen's quality control system for the U.S. accounting and auditing practice
to provide reasonable assurance that the engagement was conducted in compliance
with professional standards and that there was appropriate continuity of
Andersen personnel working on audits and availability of national office
consultation. The availability of personnel at foreign affiliates of Andersen is
not relevant to this engagement.
14
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused the report to be signed on its behalf by
the undersigned thereunto duly authorized.
HEARTLAND EXPRESS, INC.
Date: March 26, 2002 By: /s/ Russell A. Gerdin
Russell A. Gerdin
President and Secretary
Pursuant to the Securities Act of 1934, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
/s/ Russell A. Gerdin Chairman, President and Chief
Russell A. Gerdin Executive Officer (Principal
Executive Officer), Secretary March 26, 2002
/s/ John P. Cosaert Vice President of Finance
John P. Cosaert (Principal Financial Officer
and Principal Accounting
Officer) and Treasurer March 26, 2002
/s/ Richard O. Jacobson Director
Richard O.Jacobson March 26, 2002
/s/ Michael J. Gerdin Director
Michael J. Gerdin March 26, 2002
/s/ Benjamin J. Allen Director
Benjamin J. Allen March 26, 2002
/s/ Lawrence D. Crouse Director
Lawrence D. Crouse March 26, 2002
15
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Heartland Express, Inc.:
We have audited the accompanying consolidated balance sheets of Heartland
Express, Inc. (a Nevada corporation) and Subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements and schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Heartland Express,
Inc. and Subsidiaries, as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Kansas City, Missouri
January 13, 2002 (except with respect to the matter discussed in Note 6, as to
which the date is January 28, 2002)
16
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
ASSETS 2001 2000
------------ ------------
CURRENT ASSETS
Cash and cash equivalents ..................... $120,794,142 $128,027,076
Investments ................................... 40,281,980 --
Trade receivables, less allowance:
$402,812 in both 2001 and 2000 ................ 25,700,435 24,954,681
Prepaid tires and tubes ....................... 4,077,276 3,780,644
Deferred income taxes ......................... 17,358,000 16,846,000
Other current assets .......................... 144,890 328,273
------------ ------------
Total current assets ....................... 208,356,723 173,936,674
------------ ------------
PROPERTY AND EQUIPMENT
Land and land improvements .................... 4,402,820 3,237,875
Buildings ..................................... 8,532,621 8,532,621
Furniture and fixtures ........................ 1,300,848 2,604,400
Shop and service equipment .................... 1,453,755 1,459,862
Revenue equipment ............................. 133,902,094 129,572,317
------------ ------------
149,592,138 145,407,075
Less accumulated depreciation ................. 47,473,283 56,329,103
------------ ------------
Property and equipment, net ................... 102,118,855 89,077,972
------------ ------------
OTHER ASSETS ..................................... 3,762,832 5,040,358
------------ ------------
$314,238,410 $268,055,004
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities ...... $ 7,073,957 $ 6,712,053
Compensation and benefits ..................... 6,383,984 5,132,589
Income taxes payable .......................... 6,693,398 4,618,882
Insurance accruals ............................ 36,443,348 35,657,944
Other accruals ................................ 3,858,496 3,308,925
------------ ------------
Total current liabilities .................. 60,453,183 55,430,393
------------ ------------
DEFERRED INCOME TAXES ............................ 20,996,000 17,491,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01; authorized
5,000,000 shares; none issued ................. -- --
Common stock, par value $.01; authorized
395,000,000 shares; issued and
outstanding: 50,000,000 in both 2001 and
2000 (Note 6) ................................. 500,000 253,666
Additional paid-in capital .................... 6,608,170 6,608,170
Retained earnings ............................. 225,681,057 188,271,775
------------ ------------
232,789,227 195,133,611
------------ ------------
$314,238,410 $268,055,004
============ ============
The accompanying notes are an integral part of these financial statements.
17
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------------
2001 2000 1999
------------- ------------- -------------
Operating revenue .............. $ 294,617,263 $ 274,827,551 $ 261,004,122
------------- ------------- -------------
Operating expenses:
Salaries, wages, and benefits 87,643,187 73,846,541 60,258,431
Rent and purchased
transportation ............ 65,911,825 75,190,893 90,337,083
Operations and maintenance .. 47,903,499 42,650,757 30,167,446
Taxes and licenses .......... 6,188,628 5,952,448 5,934,644
Insurance and claims ........ 7,618,919 6,706,247 5,742,167
Communications and utilities 2,902,496 2,952,394 2,628,494
Depreciation ................ 17,000,927 16,284,550 16,215,587
Other operating expenses .... 6,814,399 6,505,174 5,941,411
(Gain) loss on disposal of
fixed assets .............. 14,442 (1,511,587) (927,548)
------------- ------------- -------------
241,998,322 228,577,417 216,297,715
------------- ------------- -------------
Operating income ............ 52,618,941 46,250,134 44,706,407
Interest income ................ 4,434,914 5,725,551 5,952,741
------------- ------------- -------------
Income before income taxes .. 57,053,855 51,975,685 50,659,148
Income taxes ................... 19,398,239 17,671,725 17,535,710
------------- ------------- -------------
Net income .................. $ 37,655,616 $ 34,303,960 $ 33,123,438
============= ============= =============
Basic earnings per share ....... $ 0.75 $ 0.68 $ 0.57
============= ============= =============
Basic weighted average shares
outstanding .................. 50,000,000 50,341,771 57,871,465
============= ============= =============
The accompanying notes are an integral part of these financial statements.
18
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Capital Additional
Stock, Paid-In Retained
Common Capital Earnings Total
--------- ----------- ------------ -------------
Balance, December 31, 1998 $ 300,000 $ 6,608,170 $179,939,743 $186,847,913
Repurchase of common stock (35,397) (45,096,403) (45,131,800)
Net income ............... -- -- 33,123,438 33,123,438
--------- ----------- ------------ ------------
Balance, December 31, 1999 264,603 6,608,170 167,966,778 174,839,551
Repurchase of common stock (10,937) -- (13,998,963) (14,009,900)
Net income ............... -- -- 34,303,960 34,303,960
--------- ----------- ------------ ------------
Balance, December 31, 2000 253,666 6,608,170 188,271,775 195,133,611
Stock splits (Note 6) .... 246,334 -- (246,334) --
Net income ............... -- -- 37,655,616 37,655,616
--------- ----------- ------------ ------------
Balance, December 31, 2001 $ 500,000 $ 6,608,170 $225,681,057 $232,789,227
========= =========== ============ ============
The accompanying notes are an integral part of these financial statements.
19
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------------
2001 2000 1999
------------- ------------- -------------
OPERATING ACTIVITIES
Net income ......................................... $ 37,655,616 $ 34,303,960 $ 33,123,438
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation and amortization ................... 17,779,043 17,217,526 17,312,033
Deferred income taxes ........................... 2,993,000 1,478,000 (467,000)
(Gain) loss on disposal of fixed assets ......... 14,442 (1,511,587) (906,600)
Changes in certain working capital items:
Trade receivables ............................. (745,754) (1,475,973) (2,087,502)
Prepaids ...................................... (296,632) (2,125,626) (851,922)
Other current assets .......................... 183,383 31,199 (53,330)
Accounts payable and accrued expenses ......... 1,594,686 2,349,670 (1,851,091)
Accrued income taxes .......................... 2,074,516 (355,459) 1,395,840
------------- ------------- -------------
Net cash provided by operating activities .......... 61,252,300 49,911,710 45,613,866
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment ....... 402,113 2,163,324 1,585,623
Capital additions .................................. (29,104,777) (36,335,347) (18,613,595)
Net maturities (purchases) of municipal bonds ...... (40,281,980) 500,000 (500,000)
Other .............................................. 499,410 (413,767) (177,632)
------------- ------------- -------------
Net cash used in investing activities .............. (68,485,234) (34,085,790) (17,705,604)
------------- ------------- -------------
FINANCING ACTIVITIES
Repurchase of common stock ......................... -- (14,009,900) (45,131,800)
------------- ------------- -------------
Net cash used in financing activities .............. -- (14,009,900) (45,131,800)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (7,232,934) 1,816,020 (17,223,538)
CASH AND CASH EQUIVALENTS
Beginning of year .................................. 128,027,076 126,211,056 143,434,594
------------- ------------- -------------
End of year ........................................ $ 120,794,142 $ 128,027,076 $ 126,211,056
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes .................................... $ 14,330,723 $ 16,549,184 $ 16,606,870
Noncash investing activities:
Book value of revenue equipment traded .......... $ 11,516,930 $ 12,202,753 $ 4,868,860
The accompanying notes are an integral part of these financial statements.
20
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of Business:
Heartland Express, Inc., (the "Company") is a short-to-medium-haul,
truckload carrier of general commodities. The Company provides nationwide
transportation service to major shippers, using late-model equipment and a
combined fleet of company-owned and owner-operator tractors. The Company's
primary traffic lanes are between customer locations east of the Rocky
Mountains, with selected service to the West. The Company operates the business
as one reportable segment.
Significant Accounting Policies:
Principles of Consolidation:
The accompanying consolidated financial statements include the parent
company, Heartland Express, Inc., and its subsidiaries, all of which are wholly
owned. All material intercompany items and transactions have been eliminated in
consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash equivalents are short-term, highly liquid investments with original
maturities of three months or less.
Investments:
Substantially all investments represent fixed rate municipal demand bonds
or municipal demand bond funds with a maturity of one year or less. These
investments are held to maturity and stated at amortized cost. Due to the short
maturity term of these investments, amortized cost approximates fair value.
Investment income received is generally exempt from federal income taxes.
Revenue and Expense Recognition:
Operating revenues are recognized on the date the freight is delivered and
expenses are recognized as incurred.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is computed by the
straight-line method for all assets other than tractors, which are depreciated
by the 125% declining balance method. For revenue equipment purchased after
January 1, 2000 the trailers are depreciated with a $6,000 salvage value and the
tractors with a $15,000 salvage value. Previously, trailers were depreciated to
a salvage value of up to 30% based upon when they were put in service and we
assumed no salvage value for tractors.
21
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lives of the assets are as follows:
Years
Land improvements and building 3-30
Furniture and fixtures 2-3
Shop and service equipment 3-5
Revenue equipment 5-7
Tires and Tubes:
The cost of tires and tubes on new revenue equipment is carried as a
prepayment and amortized over the estimated tire life of two years. Replacement
tires (including recapped tires) are expensed when purchased.
Goodwill:
In the third quarter of 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets, that will be
adopted by the Company on January 1, 2002. SFAS No. 142 requires that upon
adoption and at least annually, the Company assess goodwill impairment by
applying a fair value based test. With the adoption of SFAS No. 142, goodwill
will no longer be subject to amortization resulting in a decrease in annualized
operating expenses of $778,116.
Earnings Per Share:
Basic earnings per share is based upon the weighted average common shares
outstanding during each year. Diluted earnings per share is based upon the
weighted average common and common equivalent shares outstanding during each
year. Heartland Express has no common stock equivalents; therefore, diluted
earnings per share is not applicable.
Note 2. Concentrations of Credit Risk and Major Customers
The Company's major customers represent the consumer goods, appliances,
food products and automotive industries. Credit is usually granted to customers
on an unsecured basis. The Company's five largest customers accounted for 38%,
35%, and 34% of revenues for the years ended December 31, 2001, 2000, and 1999,
respectively. Operating revenue from one customer exceeded 10% of total gross
revenues in 2001, 2000 and 1999. Annual revenues for this customer were $45.0
million, $43.0 million, and $37.0 million for the years ended December 31, 2001,
2000, and 1999, respectively.
22
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Income Taxes
Deferred income taxes are determined based upon the differences between the
financial reporting and tax basis of the Company's assets and liabilities.
Deferred taxes are provided at the enacted tax rates to be in effect when the
differences reverse.
Deferred tax assets and liabilities as of December 31 are as follows:
2001 2000
------------ ------------
Deferred income tax liabilities,
related to property and equipment $ 20,996,000 $ 17,491,000
============ ============
Deferred income tax assets:
Allowance for doubtful accounts $ 153,000 $ 153,000
Accrued expenses 2,262,000 2,219,000
Insurance accruals 13,562,000 13,262,000
Other 1,381,000 1,212,000
------------ ------------
Deferred income tax assets $ 17,358,000 $ 16,846,000
============ ============
The income tax provision is as follows:
2001 2000 1999
------------ ------------ ------------
Current income taxes:
Federal $ 15,357,642 $ 14,846,728 $ 17,008,402
State 1,047,597 1,346,997 994,308
------------ ------------ ------------
16,405,239 16,193,725 18,002,710
------------ ------------ ------------
Deferred income taxes:
Federal 3,027,000 1,574,000 (448,000)
State (34,000) (96,000) (19,000)
------------ ------------ ------------
2,993,000 1,478,000 (467,000)
------------ ------------ ------------
Total $ 19,398,239 $ 17,671,725 $ 17,535,710
============ ============ ============
23
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision differs from the amount determined by applying the
U.S. federal tax rate as follows:
2001 2000 1999
----------- ----------- -----------
Federal tax at statutory rate (35%) $19,968,849 $18,191,490 $17,730,702
State taxes, net of federal benefit 502,000 340,000 607,000
Non-taxable interest income (1,458,000) (1,725,000) (1,750,000)
Other 385,390 865,235 948,008
----------- ----------- -----------
$19,398,239 $17,671,725 $17,535,710
=========== =========== ===========
Note 4. Related Party Transactions
The Company leases two office buildings and a storage building from its
president under a lease which provides for monthly rentals of $24,969 plus the
payment of all property taxes, insurance and maintenance. The lease expires May
31, 2005 and contains a five-year renewal option. In the opinion of management,
the rates paid are comparable to those that could be negotiated with a third
party.
The total minimum rental commitment under the building lease is as follows:
Year Ending December 31:
2002 $ 299,625
2003 299,625
2004 299,625
2005 124,844
-----------
$ 1,023,719
===========
Rent expense paid to the Company's president totaled $299,625 for the year
ended December 31, 2001, $292,281 for the year ended December 31, 2000, and
$282,000 for the year ended December 31, 1999. The Company also maintains cash
accounts with a bank owned by the Company's president.
Note 5. Accident and Workers' Compensation Claims
The Company acts as a self-insurer for liability up to $500,000 for any
single occurrence involving cargo, personal injury or property damage. Liability
in excess of this amount is assumed by an insurance underwriter.
The Company acts as a self-insurer for workers' compensation liability up
to a maximum liability of $300,000 per claim. Liability in excess of this amount
is assumed by an insurance underwriter. The State of Iowa has required the
Company to deposit $700,000 into a trust fund as part of the self-insurance
program. This deposit has been classified with other long-term assets on the
balance sheet. In addition, the Company has provided its insurance carriers with
letters of credit and deposits of approximately $4.9 million in connection with
its liability and workers' compensation insurance arrangements. Deposits of
$765,000 are included in Other Assets on the balance sheet.
Accident and workers' compensation accruals include the estimated
settlements, settlement expenses and an allowance for claims incurred but not
yet reported for property damage, personal injury and public liability losses
from vehicle accidents and cargo losses as well as workers' compensation claims
for amounts not covered by insurance.
Accrued claims are determined based on management's estimates of the nature
and severity of the claim. Since the reported liability is an estimate, the
ultimate liability may be more or less than reported. If adjustments to
previously established accruals are required, such amounts are included in
operating expenses.
24
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Stockholders' Equity
The Company purchased 6,977,211 shares of its common stock for $45,131,800
on October 26, 1999 and 2,155,735 shares of its common stock for $14,009,900 on
February 28, 2000. The shares have been reported as retired in the accompanying
financial statements.
On May 10, 2001 the Company's Board of Directors approved a five-for-four
split of the Company's common stock effected in the form of a 25% stock dividend
for stockholders of record as of May 21, 2001. A total of 6,341,549 common
shares were issued in this transaction. On January 28, 2002 the Company's Board
of Directors approved a two and seven tenths-for-one and seven tenths split of
the Company's common stock effected in the form of a 57.7% stock dividend for
stockholders of record as of February 8, 2002. A total of 18,291,869 common
shares were issued in this transaction. The effect of the stock dividends have
been recognized retroactively in the shareholders' equity accounts on the
balance sheet as of December 31, 2001, and in all share and per share data in
the accompanying consolidated financial statements, Notes to Financial
Statements and supplemental data.
In September, 2001, the Board of Directors of the Company authorized a
program to repurchase shares of the Company's common stock with an aggregate
purchase price of $5 million. No shares were purchased during 2001, and the
authorization to repurchase remains open at December 31, 2001.
Note 7. Profit Sharing Plan and Retirement Plan
The Company has a retirement savings plan for substantially all employees
who have completed one year of service. Employees may make 401(k) contributions
subject to Internal Revenue Code limitations. The Company may make discretionary
profit sharing and matching contributions. Company contributions totaled
$497,000, $255,000, and $501,000, for the years ended December 31, 2001, 2000,
and 1999, respectively.
25
HEARTLAND EXPRESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Commitments and Contingencies
On January 7, 2002, the Owner-Operators Independent Drivers Association,
Inc. served a lawsuit against the Company in the United States District Court
for the Southern District of Iowa. The lawsuit alleges that the Company failed
to adequately inform the owner-operators of certain deductions from their
settlement statements in violation of Department of Transportation regulations
and that the Company's standard contract with owner-operators violates those
regulations. The lawsuit seeks unspecified damages and an injunction to prevent
owner-operators from hauling for the Company until alleged contractual
deficiencies are corrected. The Company intends to defend the lawsuit
vigorously. In addition, various claims and legal actions, from the normal
course of business, are pending against the Company. In management's opinion,
the resolution of these matters will not materially impact the Company's
financial condition or results of operations.
Note 9. Quarterly Financial Information (Unaudited)
First Second Third Fourth
---------------------------------------------
(In Thousands, Except Per Share Data)
Year ended December 31, 2001
Operating revenue $ 71,923 $ 75,251 $ 73,918 $ 73,525
Operating income 12,160 13,456 12,939 14,064
Income before income taxes 13,529 14,634 13,962 14,929
Net income 8,929 9,658 9,215 9,853
Basic earnings per share 0.18 0.19 0.18 0.20
Year ended December 31, 2000
Operating revenue $ 67,190 $ 69,262 $ 68,107 $ 70,269
Operating income 12,529 12,121 11,119 10,481
Income before income taxes 13,852 13,450 12,712 11,962
Net income 9,142 8,877 8,390 7,895
Basic earnings per share 0.18 0.18 0.17 0.16
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------------
Charges To
--------------------
Balance At Cost Balance
Beginning And Other At End
Description of Period Expense Accounts Deductions of Period
- ---------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended December 31, 2001 $402,812 $178,457 $ - $178,457 $402,812
Year ended December 31, 2000 402,812 251,555 - 251,555 402,812
Year ended December 31, 1999 402,812 4,147 - 4,147 402,812
26